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The Nation; For Marriage Tax, A Messy Divorce

TO Republicans intent on damning the tax code as an inequitable tangle that is strangling the American family, Sharon Mallory's appearance before the House Ways and Means Committee a few months back was just the ticket. Miss Mallory, a 41-year-old factory worker from Indiana, testified that she and her live-in boyfriend, Darryl Pierce, would like to get married but could not afford the $3,700 in additional taxes it would cost them.

''Darryl and I love each other very much and want to be married,'' Miss Mallory said. ''But the IRS won't let us. We're victims of the marriage penalty.''

Fueled by such anecdotal outrage, Congress is well on its way toward overhauling the tax-law provisions that push many two-income couples into a higher tax bracket than they would be in if they were single.

The House took a big step in that direction on Friday, adopting a budget plan that makes eliminating the marriage penalty the No. 1 Republican tax goal this year.

''It all traces back to one simple question: Do Americans feel that it's right to tax a working couple more just because they live in holy matrimony?'' said Representative Jerry Weller, a Republican from Illinois.

But if the political appeal of attacking the marriage penalty is clear, the policy arguments are less so.

A Huge Price

More couples actually get a break from the way the tax code treats marriage than pay a penalty. Single people -- who are already at an economic disadvantage to couples since they cannot spread their living costs over two incomes -- would get nothing.

And the cost of eliminating or substantially reducing the penalty for those who do pay it would be huge. Many Republicans worry that it would crowd out other tax-cutting priorities, and Democrats fret about lost spending opportunities.

Making the case for keeping the marriage penalty is a treacherous business for members of both parties, few of whom are willing to risk being seen as undermining a venerated institution.

''I mean, anybody want to defend the marriage-penalty tax?'' Senator Trent Lott of Mississippi, the Republican leader, asked facetiously last week as the Senate prepared to grapple with the issue.

The budget plan approved by the House on Friday would provide as much as $100 million over the next five years to eradicate or substantially reduce the marriage penalty.

In the Senate, both parties are seeking ways to use some of the revenues that would be generated by the proposed tobacco legislation to reduce the marriage penalty. Senator Phil Gramm, the Texas Republican, is developing a plan that would give a break to couples earning less than $50,000, including those who are not affected by the marriage penalty. Democrats are developing a narrower version intended to help only couples who pay more because of the marriage tax.

But the growing momentum for a quick fix belies the complexity of addressing the marriage penalty.

For one thing, the penalty is hardly universal. While more than 20 million couples paid more in taxes in 1996 than they would have if they were single, 25 million couples got a marriage bonus: They paid less as a couple than they would have if they were single.

Most of the bonuses already go to the very families that social conservatives consider the most traditional -- those in which the husband works and the wife stays home. That is because the husband would be entitled to more exemptions and deductions than he got when he was single. For 1996, total bonuses of $32.9 billion, or $1,300 per couple, outweighed total penalties of $28.8 billion, or $1,380 per couple, by $4.1 billion.

Moreover, substantially reducing or eliminating the penalty without raising taxes elsewhere would cost the Federal Government at least $20 billion a year.

And while social conservatives want to allocate as much money as possible to reducing the penalty, business groups and supply-side Republicans and economists are queasy about allowing the issue to crowd out cuts in other areas, like income tax rates, capital gains taxes and inheritance taxes. Cuts that target a specific group are considered by many economists to be an inefficient way of promoting economic growth.

Perhaps most fundamentally, lawmakers have long found it difficult to address the marriage penalty without creating some other perceived inequity. Most of the proposals would do nothing for single people. Most of the proposed fixes would also give more help to people at the top of the income scale than those at the bottom.

And some of the proposals would complicate the problem by levying different amounts of taxes on couples with the same combined incomes.

The current law is the product of decades of swings in policy and public opinion about how to treat the income of married couples in a way that is fair to two-income families, single-earner couples, unmarried people and people across the income spectrum.

Nothing's Perfect

''You can't get a perfect system,'' said Iris J. Lav, deputy director of the Center on Budget and Policy Priorities, a liberal-leaning research organization. ''I think that where we are right now is largely a reasonable compromise given the competing demands of the tax system.''

When the Federal income tax was established in 1913, it was levied on individuals, with no special provision made for married couples. Starting in the 1920's, when relatively few married women worked, some states passed laws allowing married couples to split their income and pay at a lower rate than the husband would if he had to file as an individual.

In 1948, Congress responded by changing the law to allow joint filing, widening tax brackets enough that most married couples paid less than if they were single.

But, as Michael J. Graetz recounted in ''The Decline (and Fall?) of the Income Tax'' (W. W. Norton, 1997), what couples saw as a bonus, single people saw as a penalty. So in 1969, following years of protests, Congress changed the tax brackets to reduce the amount single people paid -- causing some married people, for the first time, to pay more as a couple than they would if single.

Soon protests about the marriage penalty were heard. Best known of the protesters were David and Angela Boyter, Federal employees from Baltimore who would divorce for tax purposes each December and then remarry early in the new year to reduce their taxes. Congress responded by creating a two-earner deduction in 1981.

But the deduction was eliminated in 1986. Since then, as the number of two-income couples has increased, more people have became subject to the marriage penalty. And the pressure to fix the marriage penalty has increased accordingly.